Davison Carecenters Inc. provides financing and capital to the health-care industry, with a particular focus on nursing homes for the elderly. The following selected transactions relate to bonds acquired as an investment by Davison, whose fiscal year ends on December 31.

2010

Jan. 1 Purchased at face value $2,000,000 of Hannon Nursing Centers, Inc., 10-year, 8% bonds dated January 1, 2010, directly from Hannon.

July 1 Received the semiannual interest on the Hannon bonds.

Dec. 31 Accrual of interest at year-end on the Hannon bonds

(Assume that all intervening transactions and adjustments have been properly recorded and that the number of bonds owned has not changed from December 31, 2010, to December 31, 2012.)

2013

Jan. 1 Received the semiannual interest on the Hannon bonds.

Jan. 1 Sold $1,000,000 Hannon bonds at 106. The broker deducted $6,000 for commissions and fees on the sale.

July 1 Received the semiannual interest on the Hannon bonds.

Dec. 31 Accrual of interest at year-end on the Hannon bonds

Instructions

(a) Journalize the listed transactions for the years 2010 and 2013.

(b) Assume that the fair value of the bonds at December 31, 2010, was $2,200,000.These bonds are classified as available-for-sale securities. Prepare the adjusting entry to record these bonds at fair value.

(c) Based on your analysis in part (b), show the balance sheet presentation of the bonds and interest receivable at December 31, 2010. Assume the investments are considered long-term. Indicate where any unrealized gain or loss is reported in the financial statements.